For fintech companies, the regulatory environment is a critical issue that can shape their success or failure. Regulatory requirements are constantly changing, and staying ahead of these developments requires strategic planning and knowledge of current industry trends.
Navigating this landscape can be complex and daunting but understanding how to navigate the current regulatory challenges is a key factor in maintaining stability and growth for your business. In this post, we’ll discuss what you need to know about regulatory requirements for fintech.
What are fintech regulations?
FinTech regulations are laws that guide new businesses and financial technologies in order to protect consumers’ interests and capital. Governments all over the world create regulations in order to protect their citizens from major risks, including data privacy, money laundering, and cyberattacks. Complying with regulations is a major challenge for SaaS and app developers in the fintech space because of the complexity and amount of regulations that exist.
Getting started with fintech regulations
While it may seem overwhelming, we recommend that you consider regulatory compliance as early as possible to integrate it into the early stages of development. The best way to ensure you are compliant is to hire a lawyer or consultant who is well-versed in financial compliance. If you’re just getting started, here are the most common regulatory challenges for fintech companies.
Data protection and privacy regulations
According to the World Bank, 80% of governments enforce fintech data protection and privacy regulations. This shouldn’t come as a surprise since a data or privacy breach in the fintech industry could have detrimental effects on consumers.
If you are building a fintech application or SaaS product, data protection and privacy should be at the top of your priority list. While this may feel daunting, secure coding, data encryption, and ample testing can assist you in making sure your application or SaaS product is compliant with regulatory requirements.
If you’re looking at US or European markets, the key laws you need to be aware of are the Gramm-Leach-Bliley Act in the U.S. and the General Data Protection Regulation (GDPR) in Europe. The Gramm-Leach-Bliley Act requires that fintech organizations keep consumer data well and ensure that customers understand their privacy policy. The GDPR is one of the toughest privacy and security laws in the world, and it determines how organizations gather information and what they can do with it.
Anti-money laundering regulations
In the U.S., The U.S. Patriot Act controls the Know Your Customer (KYC) policies and other identification standards. In addition to ensuring companies have cybersecurity practices in place, this act also enforces anti-money laundering (AML) practices. This regulation also ensures that fintech companies train their employees to follow laws. In the EU, the European Union Directives and Financial Action regulation are responsible for KYC policies and data checks to stop money laundering.
The cost of regulatory compliance
Unfortunately, the cost of regulatory compliance is increasing. With the expansion of fintech apps, governments have started to pay more attention to the fintech industry. Ultimately, this has led to the development of new laws to regulate the fintech industry.
It’s important to keep the cost of regulatory requirements for fintech in mind from the beginning so you can add this cost to your financial projections. It’s also important to keep in mind that the cost of not complying is twice as high as the cost of compiling, so it’s better to invest in compliance from the start.
Regulatory risks associated with partnering
Many fintech companies partner with other applications in order to create a full-service product for their customers. If you’re planning on doing this, it’s important to understand the risks associated with this. Often, when data breaches happen, it’s because one partner has a vulnerability in their app, and this allows hackers to access their partner companies.
If you’re looking to partner with a company to build your fintech app or SaaS product, ensure your partner has top-notch compliance protocols in order to minimize regulatory risk for your business.
Maintaining compliance as you grow
One regulatory requirement many fintech companies deal with is the ongoing nature of maintaining compliance. Because most businesses change, evolve, and grow over time, so too does their commitment to compliance. For example, if a business were to add a lending component to its application or SaaS product, the business would need to make sure its new product complied with the Fair Credit Reporting Act.
The bottom line
It is essential for fintech companies to be aware of all the regulatory requirements that apply to them in order to operate their businesses successfully and avoid any penalties. There are a variety of regulatory bodies that oversee different aspects of the fintech industry, so it is important to research which ones will impact your business specifically.
Depending on your company’s activities, you may need to obtain licenses or registrations from multiple agencies. Understanding your responsibilities under each set of regulations will help you ensure compliance despite the rapidly-changing landscape.
